Is HSBC Holdings plc (ADR) (HSBC) A Good Stock To Buy?

We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards HSBC Holdings plc (ADR) (NYSE:HSBC) , and what that likely means for the prospects of the company and its stock.

HSBC Holdings plc (ADR) (NYSE:HSBC) investors should be aware of a decrease in activity from the world’s largest hedge funds lately. HSBC was in 14 hedge funds’ portfolios at the end of the third quarter of 2016. There were 18 hedge funds in our database with HSBC positions at the end of the previous quarter. At the end of this article we will also compare HSBC to other stocks including Bristol Myers Squibb Co. (NYSE:BMY), British American Tobacco PLC (ADR) (NYSEAMEX:BTI), and Amgen, Inc. (NASDAQ:AMGN) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

hsbc, new, york, bank, banking, business, finance, manhattan, city, industry


With all of this in mind, let’s review the new action encompassing HSBC Holdings plc (ADR) (NYSE:HSBC).

How are hedge funds trading HSBC Holdings plc (ADR) (NYSE:HSBC)?

At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a fall of 22% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HSBC over the last 5 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Pine River Capital Management, led by Brian Taylor, holds the most valuable position in HSBC Holdings plc (ADR) (NYSE:HSBC). According to regulatory filings, the fund has a $497.5 million position in the stock, comprising 8.6% of its 13F portfolio. The second most bullish fund manager is Fisher Asset Management, led by Ken Fisher, holding a $481.4 million position. Some other professional money managers that are bullish encompass Simon Sadler’s Segantii Capital, and Matthew Hulsizer’s PEAK6 Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now that we’ve listed the most bullish investors, let’s also take a look at some funds that cut their entire stakes in HSBC Holdings plc (ADR) (NYSE:HSBC) during the third quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the biggest position of the “upper crust” of funds tracked by Insider Monkey, comprising an estimated $56.4 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also sold off its call options worth about $26.8 million.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as HSBC Holdings plc (ADR) (NYSE:HSBC) but similarly valued. We will take a look at Bristol Myers Squibb Co. (NYSE:BMY), British American Tobacco PLC (ADR) (NYSEAMEX:BTI), Amgen, Inc. (NASDAQ:AMGN), and TOTAL S.A. (ADR) (NYSE:TOT). All of these stocks’ market caps resemble HSBC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BMY 59 2280370 -2
BTI 16 638713 1
AMGN 59 1863803 1
TOT 14 68492 -2

As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $1.21 billion. That figure was $1.06 billion in HSBC’s case. Bristol Myers Squibb Co. (NYSE:BMY) is the most popular stock in this table. On the other hand TOTAL S.A. (ADR) (NYSE:TOT) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks HSBC Holdings plc (ADR) (NYSE:HSBC) is even less popular than TOT. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: None